Category: Czech Republic

Trademark owners and unconventional trademark enthusiasts should pay close attention to a new amendment to the Czech Act on Trademarks, which is expected to come into force on 1 January 2019. The new law implementing the EU’s Trademark Directive 2015/2436 will enable registration of marks that are identical with an earlier trademark. This may prove upsetting for unwary trademark owners. At the same time, the new legislation might inspire greater creativity, as it will open doors for non-traditional trademarks.

Currently when a trademark application is filed, the Czech Intellectual Property Office must check that the mark applied for is not identical to any already registered trademark. This is a great service for trademark owners, who do not need to worry that someone else may have registered the same mark for the same goods or services. However, if the president signs the new legislation already approved by the Czech Senate on 15 November 2018, trademark owners will no longer be able to rely on the Intellectual Property Office. 

Starting from 1 January 2019, if an application is filed to register an identical mark, the owner of the earlier trademark will have to file an opposition with the Intellectual Property Office to prevent the registration. If the trademark owner is not vigilant, a competitor or speculator may obtain an identical trademark for identical goods or services, and two identical marks will be used on the market simultaneously. We therefore recommend that trademark owners regularly monitor new trademark applications or use professional monitoring services.

Another interesting change introduced by the new law is a more relaxed definition of trademark. At present, a sign must be capable of graphical representation to be registrable as a trademark. As of 1 January 2019, even a sign that is not capable of graphical representation may become a trademark, provided it can be represented in the Trademark Register in a manner that allows the competent authorities and the public to determine the clear and precise subject matter of the protection afforded to its proprietor. 

The amended trademark definition is a game changer in terms of what can be registered in the Trademark Register. Currently, the Intellectual Property Office accepts applications for word, combined, figurative, word-graphical or three-dimensional trademarks and trademarks formed solely by color or a combination of colors. Under the new law, new types of marks, such as sound, motion, multimedia, hologram or others can be accepted because of the abolishment of the graphic representation requirement. Soon we can look forward to trademark searches that comprise playing audio and audio-visual files. Even applications for olfactory trademarks, such as the famous smell of freshly cut grass, might make a comeback. In light of the previous case law, however, it seems hard to believe that smells could successfully qualify for trademark registration anytime soon.

Other changes will be introduced too, such as certification marks or new tools to help protect trademark owners from counterfeits, as it will be possible to prevent transit of infringing goods via the Czech Republic even when counterfeits are not intended for release into free circulation on the local market. The national trademark system will now become even more harmonized with the EU system.

By Eva Bajakova, Attorney at Law  Schoenherr

Business corporations have been criminally liable in the Czech Republic since January 2012. A December 2016 amendment has introduced the possibility to exculpate oneself from criminal liability if the company “has applied all efforts that could be reasonably expected from it” to avert an offence. Nowadays, in practice this means setting up a suitable compliance management system (“CMS”). But what should a CMS look like to effectively exculpate a company? To answer this question, the new, second methodology devoted to this topic of the Czech General Prosecutor’s Office of August 2018 should be of assistance (the “Methodology”).

According to the Methodology, a properly set up CMS means that it is proportionate to the size of the company, to the regulatory requirements, to the internationality and to the line of business, as well as to the company’s risk profile or market environment. The CMS must secure against all risks to which a company might be exposed. Of course, this means not only having CMS “on paper”. It will always be important that these measures have been set so as to actually avert an offence.

The Methodology identifies the three fundamental elements of each CMS, which are: (i) prevention, (ii) detection, and (iii) response.

1. Prevention

As the most typical precautionary measure, the Methodology states a code of ethics or behavioural rules, while pointing out that it will not be sufficient to simply publish these measures on a website or attach them to an employment contract. Instead, awareness about these measures must be raised repeatedly among the employees themselves. As part of prevention, the Methodology also clarifies the due diligence of business partners (i.e. know-your-third-party / customer processes) as well as screening of employees to reduce the risk of conflicts of interest (i.e. know your employee). Regular induction and refresher trainings are also important, either online or even in person, depending on the size of the company, the risk profile and the sophistication of the participants.

2. Detection

The Methodology further emphasises the need for detection, i.e. determining whether someone violates the compliance measures. This can be done through internal controls and audits or external audits, as appropriate. In order to detect unlawful conduct by the company in time, appropriate communication channels must be set up for anonymous notifications of individual suspicions. Internal or external ethics hotlines or an ombudsman can serve these purposes, but it will always depend on the specific circumstances. At the same time, it is appropriate for each company to have an internal review process in its internal principles. Thus, the company should not only passively wait for the law enforcement authorities, but should investigate the infringement itself, identify the appropriate consequences and correct system errors. In addition, it is important to monitor and review CMS, especially as to whether it is implemented across the entire organisation and all business units, and whether weaknesses are identified, and if possible, options for improvement.

3. Response

The final element of CMS is the response, i.e. the company’s ability to respond to CMS violations. This means that companies should clearly identify the consequences of CMS violations and enforce them. As the most typical response measure, the Methodology sets out the determination of the labour law consequences (e.g. a complaint, dismissal, transfer or termination) and remuneration for voluntary notification of CMS violations. In addition, this might include the recovery of damages and reporting to law enforcement authorities.

What about in practice?

Although in practice there are not many cases where the courts have dealt with CMS issues and issues of exemption, the Methodology mentions several criminal decisions that illustrate how the courts are currently dealing with this issue.

In the first case, the High Court in Prague annulled the decision of the Municipal Court in Prague, which decided to exempt a company from a criminal offence only because the company had the obligation to comply with the compliance programme and the code of ethics stated in the agreement to perform work. According to the High Court, the Municipal Court proceeded superficially in its assessment of the exemption of criminal liability, and the existence of the code is only the first necessary step that the company must take, while the second step is to ensure that the code is followed.

In the second case, the High Court in Prague also annulled the decision of the Municipal Court in Prague, which decided to exempt a company only because it had a system for training employees and an ethics code. However, this was not sufficient for the High Court, which stated that “not only formal preventive measures such as internal documents adopted by the company (organisational rules, codes of ethics, etc.), or documented trainings of executives on the content of these documents, but also the fulfilment of such theoretical measures in the real life of the company, i.e. efforts to prevent unlawful conduct, should also be reflected in the control area (detection of infringements) and in the repressive area in the event of an infringement.“

The last case which the Methodology elaborates on involved the violent crime of extortion. Here, the High Court in Prague concluded that “if an employee behaves within the scope of his performance as an employee in a strictly criminal manner and commits an act of a violent nature […], it is clear that he has already breached the most basic rules within the limits of the law, it is hardly required that employees should be explicitly forbidden by internal measure, for example, to rob, steal or rape – but if such acts do occur, consideration should be given to how control mechanisms have been set up in the company (not only by paper internal measures, but also by the actual exercise of control over employee performance) so that senior officials can identify and prevent such acts, or eliminate or reduce the criminal liability of a legal entity […] If the court of first instance points to the smaller size of the legal entity […] and lesser control of employee activity in this way, it must be stated that […] the direct and strictly required liability for the conduct of employees is transferred directly to the statutory body of the legal entity.” 

Conclusion

It is not easy to exempt a legal entity from criminal liability. Nor is it sufficient to have these measures implemented only formally “on paper”, but it is also necessary to actively promote them and check compliance. That is why we recommend seeking your lawyer’s advice about a compliance programme. He will not only help you create a tailor-made programme, but will also advise you on further trainings for employees and management, testing compliance with established measures, and responding to violations in case of infringement.

By Rudolf Bicek, Attorney at Law Schoenherr

45 days. That’s how long it took Roman Kramarik, Partner at JSK in the Czech Republic who recently became the first-ever Czechoslovakian pilot to fly around the world, to complete his 36,863-kilometer mission. After crossing three oceans, surviving monsoon rains, facing the cold of Alaska and the warmth of the Far East, all behind the controls of his Cessna P210N Centurion airplane named the “Winged Lion,” Kramarik returned to his office at the Prague law firm, rightly proud – and more than a little exhausted.

Stepping in Bata’s Shoes

The inspiration for Kramarik’s journey came from an unexpected source. “Three years ago I was given a book by my grandmother about the travels of the famous Czech industrialist Jan Antonin Bata, who did a similar around-the-world trip – though not solo – for business purposes, long before globalization was invented,” Kramarik explains. “He was a visionary man, so I decided to retrace his journey and search for possible Czech traces abroad – not only traces of the work of the Bata family, but also those of other emigrants who left their indelible marks around the world.” 

Bata was a successful Czech shoe manufacturer who fled the Nazis before World War II and eventually settled in Brazil, where he founded several towns and communities. “He and his brother set up companies all around the world,” Kramarik says. “In 1937 he took a long trip and he wrote a lovely, inspirational book, entitled Za Obchodem Kolem Sveta [“Around the World for Business”] – it only exists in Czech – which I read in one breath.”

But Bata wasn’t the only inspiration, and Kramarik also cites the 100th anniversary of Czechoslovakia, that was celebrated this year. “Another reason for I flew now and not in ten years’ time, when I would probably be a more experienced pilot,” he says, “was to pay special respect to the establishment of Czechoslovakia in 1918 following the end of World War I.” The commemoration also played an important part in the choice of name for the aircraft. Czech aircraft are allocated the “OK” country code, but pilots are allowed to select the three letters that follow it. “You can use three letters that are available and do not mean any international codes in aviation terminology. We decided that the aircraft of our club, the Aeroklub Praha-Letnany, where I learned to fly in 1989, will carry the initials of our first president, Tomas Garrigue Masaryk.” The Winged Lion thus flew as OK-TGM.

The Pre-Flight Checklist

A team of ten people helped Kramarik prepare for his historic flight, including representatives from ABS Jets – a business jet operator at Prague’s Vaclav Havel Airport – who planned the itinerary and ensured that all necessary permits were obtained. “Planning the route presented a great deal of work that was initiated a couple of weeks before the departure,” said Michal Pazourek, Director of Ground Operations at ABS Jets.  “It all started with discussions and analyzing different options of how the flight should be executed with regard to weather and prevailing winds, as well as legislative requirements. This was followed by intense communication with the airports and double-checking the availability of services and fuel.”

Finally, and to make sure he was prepared for any complication that might arise, Kramarik spent hours in the swimming pool at the Czech Agricultural University to learn how to board a life raft and how to swim in a dry suit with a life jacket on. 

Liftoff and Flight

On the morning of July 25, 2018, the Winged Lion took off from the Czech village of Tocna, accompanied by a group of aircraft – including the restored Lockheed Electra once used by Jan Antonin Bata.

Kramaric made 30 stops on his passage around the world, including one unexpected diversion to Nagpur, India, caused by heavier-than-expected monsoon weather. The longest stop-overs were in New Delhi, where he waited for an audience with the Dalai Lama, and in Thailand, where he repaired a dent in the propeller. 

“There were no passengers on any part of the flight, because I had removed all seats from the aircraft (except the captain’s seat) for safety reasons: to reduce weight and give way to fuel, oil, supplies, and spare parts,” Kramaric remembers. “And those came in handy: in India, I had to replace a defective servo of the autopilot and in Thailand, I had to perform extensive maintenance on the aircraft.” At one point he also had to carry a hand-operated fuel pump, because in remote airports, fuel was delivered in large 200 liter drums and it was his responsibility to pump it into the tanks. “I became an expert in opening fuel drums with only pliers and a screwdriver,” he laughs. 

The longest leg that Kramaric flew was 3,313 km from Halifax, Canada, to Santa Maria in the Azores, which took him just over ten hours in the air. “However, the long flights themselves, which I expected to be tiring, eventually were like a refreshing breeze,” he says, though he concedes that maintaining the necessary focus for six weeks straight was extremely challenging. “I managed – I did not collapse – but I don’t think I could have sustained something like this for 12 weeks.” 

Boredom, it appears, was not a problem. “I always had something to do,” he recalls. “I took some books with me, but I did not read a single page. When you fly long legs over ocean, desert, or inhospitable remote areas such as Russia’s Far East, even when there are no urgent duties, you keep re-counting everything as you go, checking the instruments and fine-tuning the fuel mixture and engine temperature every five minutes. “

The Return of the Hero 

Finally, on September 8, 2018, Kramarik completed his flight. “If I had to summarize it in one word, it would be: ‘exhausting’,” he reflects. “Not necessarily the time spent in the cockpit airborne. But the flight time, combined with the preparatory work before each flight, necessary maintenance and detailed weather analysis, and the difficult decisions I was forced to make made the whole mission an exhaustive exercise. Last but not least, I had to keep in touch with the media back home which was following the mission. There was a lot of stress overall. When you squeeze so many activities into such a short period of time, and you are facing ever-shortening days as you fly east, it can be really exhausting. A lot more than I expected it would be.” 

“Nonetheless it was definitely worth all the pain,” he smiles. “I saw some amazing places and met a lot of special people. I had the pleasure of finally meeting the Dalai Lama, which was a very moving experience. We talked about Vaclav Havel, who is a major Czech footprint in contemporary history. His Holiness told me how much and why he respected him, and he said that they were good friends, and how much good he could have done if he had not died so early. At another stop, in the United States, in Cedar Rapids, Iowa – which is considered one of the meccas of Czechs and Slovaks in America – the center of the city is called New Bohemia, there is another part called the Czech village, there is a Czech and Slovak museum, etc.”

Kramarik is asked whether he has any similarly grand plans for the future. “One planet was enough for a circumnavigation,” he answers, “but a man without a dream is a dead man. I have plans, but rather than talking about them, I will see to have them turned into reality. However, now I will definitely focus entirely on work and our clients for some considerable time before I take any more time off to embark on another mission.”  

This Article was originally published in Issue 5.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

In its most recent annual report, the Czech Competition Authority stated that the investigation of bid-rigging cartels would be its highest priority. The issue of bid rigging is a hot topic that has attracted the attention not only of the CCA, but also that of the Czech police and public prosecutors, who have been very active in investigating bid-rigging cartels in recent years.

With this increased level of scrutiny, companies should be aware that potential antitrust behavior brings not only the risk of high fines from the CCA, but more importantly criminal sanctions, which may be catastrophic for both the company and its management.        

Criminal Law Implications of Bid Rigging

Under Czech law, companies can be held liable for certain crimes. However, unlike individuals, corporate entities cannot be held criminally liable for breaches of antitrust law. Thus, formally, only the CCA and/or the European Commission can investigate and punish cartels for bid rigging. 

However, recently we have observed a growing trend whereby the police and public prosecutors are actively going after bid-rigging cartels and pursuing companies in such cases through different means. Specifically, they are prosecuting them for “manipulating public procurement and public tenders” – a crime for which companies can be held criminally liable. 

This practice has material implications for companies operating in the Czech Republic. In practice, if a company is convicted for bid rigging, it faces, among other things, the following negative consequences: (i) substantial fines; (ii) a non-discretionary ban from participation in public tenders for at least five years; and (iii) significant reputational damage, given that criminal records are publicly available and cannot be deleted for at least five years, and in certain cases even longer.

Such penalties can strike a deathblow to companies – especially those which depend on public tenders for their business. 

Limited Legal Tools for Defense 

Czech criminal law does not provide companies with sufficient tools to mitigate the negative effects of criminal convictions, such as leniency or settlement programs, which are commonly used by individuals in antitrust infringement cases.

For instance, if an individual files a successful application for leniency before the CCA in antitrust infringement cases, he/she can obtain a reduction or removal of fines and, in some cases, avoid being blacklisted from public tenders. Moreover, Czech criminal law recognizes the successful application for leniency before the CCA as a way of exculpating an individual from subsequent criminal liability. 

However, companies accused of bid rigging and prosecuted for these crimes do not have this option. In general, they cannot even settle with the public prosecutor or judge since most bid-rigging cases are too serious to qualify for this.

The negative consequences of a criminal conviction for bid rigging occur automatically, and judges do not have any discretion to decide otherwise. 

We see this as a potential problem, in particular for the large corporations that are vital for the Czech economy, and which may face criminal sanctions even for quite negligible cases involving their employees. 

Is There a Fix?

The existing Czech criminal law requires, in our view, substantive amendment in order to protect the rights of companies accused of bid rigging. First, it should be clear whether bid rigging should fall within the jurisdiction of criminal prosecution, and if so, what types of cases can be prosecuted. It should also be clear what type of offences should be left exclusively to the CCA’s competence. Secondly, companies that are criminally accused of involvement in bid rigging should be provided with alternatives such as settlement or leniency in order to give them a reasonable chance of surviving a criminal conviction. 

As an alternative, there is an argument that the prosecution of all bid-rigging cases should be left to the exclusive jurisdiction of the CCA and/or the European Commission due to their longstanding expertise in detecting and addressing these types of antitrust behavior. 

Obviously, given the severe nature of the sanction, companies in sectors sensitive to bid rigging should implement solid compliance programs to educate their employees and protect themselves from both administrative and criminal sanctions. If the company detects any anti-competitive behavior, it should consider applying to the CCA for leniency. If a leniency application is done in time, the CCA’s binding decision on a bid-rigging case would create a legal obstacle, preventing the police and public prosecutor from prosecuting the company for the same acts covered by the CCA’s decision. 

By Petr Zakoucky, Partner, and Adam Prerovsky, Associate, Dentons

This Article was originally published in Issue 5.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.